The 2001 Turkish economic crisis was a financial crisis which resulted in a stock market crash and collapse in the
Turkish lira
The lira (; Currency sign, sign: Turkish lira sign, ₺; ISO 4217, ISO 4217 code: TRY; abbreviation: TL) is the official currency of Turkey. It is also legal tender in the ''de facto'' state of the Turkish Republic of Northern Cyprus. One lira i ...
as a result of political and economic problems that had been wearing on Turkey for years.
Leading up to the crisis, throughout the 1980s and 1990s, Turkey relied heavily on
foreign investment for
economic growth
In economics, economic growth is an increase in the quantity and quality of the economic goods and Service (economics), services that a society Production (economics), produces. It can be measured as the increase in the inflation-adjusted Outp ...
, with trade above 40% of GNP. The
Turkish government
The Government of Turkey () is the national government of Turkey. It is governed as a unitary state under a presidential representative democracy and a constitutional republic within a pluriform multi-party system. The term government can me ...
and banking systems lacked the financial means to support meaningful economic growth. The government was already running enormous
budget deficit
Within the budgetary process, deficit spending is the amount by which spending exceeds revenue over a particular period of time, also called simply deficit, or budget deficit, the opposite of budget surplus. The term may be applied to the budg ...
s, and one of the ways it managed to sustain these was by selling huge quantities of high-interest bonds to Turkish banks. Continuing inflation (likely a result of the enormous flow of foreign capital into Turkey) meant that the government could avoid defaulting on the bonds in the short term. As a consequence, Turkish banks came to rely on these
high-yield bonds as a primary investment.
Political instability
In March 1996 a Coalition was formed between the
Motherland Party's
Mesut Yılmaz
Ahmet Mesut Yılmaz () (6 November 1947 – 30 October 2020) was a Turkish politician. He was the leader of the Motherland Party (, ANAP) from 1991 to 2002, and served three times as Prime Minister of Turkey. His first two prime-ministerial term ...
and the
True Path Party
The True Path Party (, DYP) was a centre-right political party in Turkey, active from 1983 to 2007. For most of its history, the party's central figure was Süleyman Demirel, a former Prime Minister of Turkey who previously led the Justice Part ...
's
Tansu Çiller
Tansu Çiller (; born 24 May 1946) is a Turkish academic, economist, and politician who served as the 22nd Prime Minister of Turkey from 1993 to 1996. She was Turkey's first and only female prime minister. As the leader of the True Path Party ...
. The plan was for Yilmaz and Çiller to alternate the
Prime Ministry. However, there was much public distraction caused by leader of the
Welfare Party
The Welfare Party (, RP) was an Islamist political party in Turkey. It was founded by Ali Türkmen, Ahmet Tekdal, and Necmettin Erbakan in Ankara in 1983 as heir to two earlier parties, National Order Party (MNP) and National Salvation Party ...
Necmettin Erbakan
Necmettin Erbakan (29 October 1926 – 27 February 2011) was a Turkish politician and political theorist who served as the 23rd prime minister of Turkey from 1996 to 1997. He was pressured by the military to step down as prime minister and was la ...
's threats to investigate Çiller for corruption. Meanwhile, Erbakan, who had been excluded from the coalition, did everything he could to rally support for an Islamic NATO, and an Islamic version of
the European Union.
The Motherland coalition collapsed in part because of Erbakan's widespread public support. Addition tensions wreaked havoc on the government. Yilmaz was forced to resign on June 6, 1996, with the government having lasted for only 90 days. Erbakan became Prime Minister on June 29 as the head of a Welfare/True Path coalition.
The success of the new Welfare-Path coalition was viewed with hostility by the military. Erbakan's explicitly Islamist policies resulted in a post modern coup in which the military forced Erbakan to yield power to Demirel who yielded to Yilmaz on June 19, 1997. The political fighting between Yilmaz and Ciller on one side, and Erbakan on the other would continue, making coalitions difficult to create. In addition, corruption was rampant at this time. People were highly disillusioned with their government. This lack of faith and efficacy would cause foreign nations to carefully examine any investment in Turkey.
On 21 February 2001, during a quarrel in a
National Security Council
A national security council (NSC) is usually an executive branch governmental body responsible for coordinating policy on national security issues and advising chief executives on matters related to national security. An NSC is often headed by a n ...
meeting, President
Ahmet Necdet Sezer threw the constitutional code book at the elderly Prime Minister
Bülent Ecevit
Mustafa Bülent Ecevit (; 28 May 1925 – 5 November 2006) was a Turkish politician, statesman, poet, writer, scholar, and journalist. He served as the Prime Minister of Turkey four times between 1974 and 2002. He served as prime minister in 197 ...
, sparking a full-blown crisis.
Foreign divestment
The
International Monetary Fund
The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution funded by 191 member countries, with headquarters in Washington, D.C. It is regarded as the global lender of las ...
(IMF) team in 1996 warned of an impending
financial crisis
A financial crisis is any of a broad variety of situations in which some financial assets suddenly lose a large part of their nominal value. In the 19th and early 20th centuries, many financial crises were associated with Bank run#Systemic banki ...
because of the deficit, which soon came into being. Turkey's unstable political landscape led many foreign investors to divest from the country. As
foreign investors observed the political turmoil and the government's attempts to eliminate the budget deficit, they withdrew $70 billion worth of capital from the country in a matter of months. This left a vacuum of capital that Turkish banks were unable to alleviate because the government trying was no longer able to pay off its bonds. With no capital to speak of, the
Turkish economy slowed dramatically.
Stabilization efforts
In November 2000, the IMF provided Turkey with $11.4 billion in loans and Turkey sold many of its state-owned industries in an effort to balance the budget. In the case of
Turkish Airlines
Turkish Airlines (Turkish language, Turkish: ''Türk Hava Yolları''), or legally Türk Hava Yolları Anonim Ortaklığı, is the flag carrier of Turkey. , it operates scheduled services to 352 destinations (including cargo) in Europe, Asia, Oce ...
, advertisements were placed in newspapers to attract offers for a 51% stake in the company. By 2000 there was massive unemployment, a lack of medicine, tight credit, slow production to fight inflation and increasing taxes. Stabilisation efforts had yet to produce any meaningful effects, and the IMF loan was widely seen as insufficient.
Crash
On February 19, 2001, Prime Minister Ecevit emerged from a meeting with President Sezer saying, "This is a serious crisis." This underscored financial and political instability and led to further panic in the markets. Stocks plummeted and the
interest rate
An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, ...
reached 3,000%. Large quantities of
Turkish lira
The lira (; Currency sign, sign: Turkish lira sign, ₺; ISO 4217, ISO 4217 code: TRY; abbreviation: TL) is the official currency of Turkey. It is also legal tender in the ''de facto'' state of the Turkish Republic of Northern Cyprus. One lira i ...
were exchanged for
U.S. dollars
The United States dollar (symbol: $; currency code: USD) is the official currency of the United States and several other countries. The Coinage Act of 1792 introduced the U.S. dollar at par with the Spanish silver dollar, divided it int ...
or euro, causing the
Turkish central bank to lose $5 billion of its reserves.
The crash triggered even more economic turmoil. In the first eight months of 2001, 14,875 jobs were lost, the dollar rose to 1,500,000 liras, and
income inequality
In economics, income distribution covers how a country's total GDP is distributed amongst its population. Economic theory and economic policy have long seen income and its distribution as a central concern. Unequal distribution of income causes ...
had risen from its already high level.
Significance
The crash was emblematic of the political and economic problems that had been wearing on Turkey for years. Confidence in the government had been eroded by corruption and the inability to form lasting coalitions. The
stock market crash
A stock market crash is a sudden dramatic decline of stock prices across a major cross-section of a stock market, resulting in a significant loss of paper wealth. Crashes are driven by panic selling and underlying economic factors. They often fol ...
revealed Turkey's economic situation to be not only extremely fragile but also entirely dependent on foreign investment. Although not as significant as decreased foreign investment or the massive budget deficit, the crash highlights Turkey's recent political instability.
Critical interpretations examine how the 2001 crisis affected Turkish society and its shift towards
neoliberalism
Neoliberalism is a political and economic ideology that advocates for free-market capitalism, which became dominant in policy-making from the late 20th century onward. The term has multiple, competing definitions, and is most often used pe ...
after the 1980s. According to one journal article, the 2001 Turkish crisis and state-organised rescue served to preserve, renew, and intensify "the structurally unequal social relations of power and class characteristic of
finance-led neoliberal capitalism" in ways institutionally specific to Turkish society.
See also
*
2018–current Turkish currency and debt crisis
Notes
References
* Ahmad, F. (2003). ''Turkey: The Quest for Identity''. Oxford: Oneworld.
{{Financial crises
Economic history of Turkey
2001 in Turkey
2001 in economic history
Economic crises
2001 in Turkish politics
February 2001 in Turkey